In-House vs Outsourcing: Navigating Business Strategy Choices

Deciding between establishing an in-house development team or outsourcing to a specialised external service is a significant strategic dilemma for companies today. 

On the one hand, most enterprises favour in-house hiring for development because of advantages like face-to-face communication and project control. However, on the other hand, outsourcing development is rising; in fact, it grew by 70% in 2023. ^[1] This growth can be attributed to the need to cut costs and access global expertise. 

If you plan to leverage the best technical expertise in the industry to develop a functional product, you no doubt wonder if in-house vs outsourcing is the right option. In this article, we will examine important considerations when developing software and explore how both options weigh against those considerations. 

5 Key Considerations When Developing Software

While building software might appear to be easy at first glance, a close look shows that it can only be seamless if you come prepared. This means you have to consider factors ranging from cost to technical expertise, development time, security, scalability, etc., which will, in turn, help you make the right decision when comparing outsourcing vs in-house development.

1. How much do you plan to spend developing the software? 

One consideration includes the expense of advertising job openings on various job boards, a process that can take weeks or months. The cost also includes the time and resources spent on interviewing candidates, which can significantly increase overhead before the development even begins.

But that is not all!

Setting up a team requires a substantial financial commitment, not only for competitive salaries but also for comprehensive benefits packages to attract top talent. These costs can escalate quickly, especially when you choose to maintain a high standard of support, including continuous training and development programs.

Additionally, the decision on where to hire developers – whether in-house, offshore, or nearshore – greatly impacts prices. In-house hiring might lead to higher expenditure due to salary expectations in the company's home country. Conversely, offshore hiring can reduce salary costs but might increase management complexity and impact communication. 

Nearshore options offer a middle ground, potentially providing a balance between cost, convenience, and oversight. Each choice comes with its trade-offs, influencing the overall budget and operational dynamics of the development process.

2. How soon do you want to get your software product to the market? 

When speed is essential, outsourcing can offer a more immediate solution. External teams, already formed and experienced, can initiate projects swiftly, bypassing the time-consuming processes of hiring and training that in-house staff require. 

For instance, a tech startup aiming to launch a new app might opt to outsource to a specialised software firm. This route can significantly accelerate development, especially for firms looking to break into the market without delay. 

On the other hand, building an in-house dev squad, while initially slower, enhances long-term control over project direction and quality. It fosters a dedicated environment where members align closely with the company's vision and culture. However, assembling from scratch demands significant time and resources, potentially delaying the project's start.

A financial services company looking to develop bespoke trading software might prefer in-house hiring. This choice ensures that the product closely aligns with stringent industry regulations and the company's specific needs despite the longer initial setup time. 

3. Do you have all the needed technical expertise?

Regions vary significantly in their pool of software engineers, and some might have a scarcity, especially in advanced technological fields. This can inflate salaries and extend recruitment processes, impacting project timelines and costs. In fact, in some cases, it may not be possible for firms to find local talent.

For example, a startup in Silicon Valley might prefer to recruit from nearby universities known for their strong tech programs, such as Stanford or UC Berkeley. On the other hand, a startup in a remote location can outsource software development to a firm in Eastern Europe, benefiting from the region's large number of skilled developers and typically lower wage structures.

In certain development domains, the need for rare skills can complicate hiring. For instance, proficiency in emerging technologies like artificial intelligence, blockchain, or advanced cybersecurity may be less common. 

If you need to hire programmers knowledgeable in rare skills, you might find that the local talent pool lacks this expertise. This will necessitate a broader search, which could include remote hiring or outsourcing to areas with a richer skill base.

4. How do you plan to handle communication? 

Face-to-face interaction often enhances collaboration and problem-solving. If you value this direct communication, an in-house team physically present in your office might be preferable. Such arrangements can also ensure that the programmers have a deep understanding of your company's culture and goals, aligning more closely with your business objectives.

Suppose a retail company launches a proprietary e-commerce platform that integrates closely with its existing inventory and customer service systems. The success of this platform necessitates quick updates and real-time problem-solving, especially during high-traffic events. 

For such scenarios, an in-house development squad could be advantageous. The team, located at the company's headquarters, would benefit from direct communication with the IT, inventory, and customer service departments, allowing for swift responses to any technical issues or required changes. 

If your operations don't require real-time collaboration and feedback, or if you don't need to interact with the programmers face-to-face, finding an external agency can be of benefit.

However, managing programmers across various time zones presents its challenges. It necessitates robust technical tools and platforms to facilitate seamless communication. Before proceeding, assess whether your current infrastructure supports such collaboration or if you would need significant upgrades.

5. How will you ensure the security of your software?  

For firms where safety is paramount, such as financial services or healthcare, an in-house team might better align with the stringent protocols these industries require. For example, a healthcare provider handling sensitive patient data would benefit from a squad that is constantly trained on HIPAA compliance in the US or GDPR in Europe, reducing the risks associated with data breaches.

Moreover, different industries are governed by various data protection regulations, such as the GDPR in Europe or the DPA 2018 in the UK, which dictate how data should be handled and protected. On-site developers might be more adept at navigating these specific compliance requirements continuously, whereas outsourcing requires ensuring the agency's adherence to these standards, potentially complicating compliance efforts.

However, if your business doesn't handle sensitive customer data, you can consider hiring a third party for software development. This might involve additional layers of checks and audits to ensure the external agency complies with necessary regulations, which can be both time-consuming and costly.

Developing Software In-House 

In-house software development involves leveraging existing staff, a method that offers greater control over both the development process and the final product. However, it requires substantial investment in skilled personnel and technology, which may be challenging for some organisations.

Pros and cons of in-house software development 

This approach has several distinct advantages and challenges. 

Pros

Cons

When to opt for in-house development

Let's explore scenarios where in-house development is not just a viable option but also an optimal one.

• Commitment to long-term development: Companies planning for extensive and ongoing software projects often benefit significantly when they hire programmers who work from their office locations. This approach ensures that their strategic objectives are ingrained in the development process from inception through to deployment and beyond.
• Emphasis on high security: If you operate in industries where safety is paramount – such as finance, healthcare, and government – developing software internally can mitigate risks. This approach will help you minimise vulnerabilities that could be exploited during development.
• When you seek comprehensive control: If you want to be in charge of the whole development process, this might be the best approach for you. This will enable you to make immediate decisions and alterations without the need to navigate external protocols. Also, you get direct oversight of the project timelines, technological stacks, and operational priorities.

Outsourcing Software Development 

Software development outsourcing involves engaging a third party to create software products, which is a cost-effective alternative to in-house development. This method leverages global expertise, allowing businesses to tap into specialised skills without geographical constraints. 

Pros and cons of software development outsourcing 

While outsourcing can be a strategic move for businesses seeking cost reduction and expertise, it comes with its own set of challenges. 

Pros

Cons

When to outsource software development 

Here are some instances when you can opt for outsourced development:

• Quick turn-around time: Choose this option when your project requires speedy completion. Outsourced teams can start immediately, bypassing the slow phases of recruitment and training, thus ensuring timely project delivery.
• Developing complex products: If your project involves complex or cutting-edge technology, hiring a specialised agency can provide the necessary expertise and innovative solutions.
• Utilising existing resources: Outsourcing is beneficial when you prefer to use existing resources rather than investing heavily in new infrastructure or long-term development commitments.
• Accessing specialised skills at lower costs: When specialised skills are needed but are not available in-house, contracting out can be cost-effective. This approach allows access to a global talent pool and specialised expertise without the overhead of expanding your internal staff.

Outsource Software Development Effectively: Managing Risks

If you have decided to hire an outsourcing agency to develop your software, you have to devise plans to mitigate some of the issues inherent in this approach. 

Given below are three strategies for overcoming software outsourcing challenges.

1. Look for a company that takes security seriously 

The best way to guarantee the safety of your web or mobile app is by selecting a partner with a robust security protocol and a strong track record. Make sure that the company adhere to international security standards like ISO/IEC 27001 to safeguard your projects. This approach may involve clearly defining security standards and expectations in the contract. 

Additionally, you should implement continuous monitoring and audits throughout the project lifecycle to help identify and reduce risks early. Furthermore, incorporating encryption practices and safe access controls will further safeguard sensitive data. 

2. Don't compromise on quality 

Clarity and communication are key to guaranteeing the quality of your software. Initially, you have to define your project requirements and quality benchmarks explicitly. This will enable the team to know what you expect of them. Subsequently, look for programmers who employ rigorous quality assurance processes and who have proven expertise in your industry. 

Moreover, you should structure the contract to include detailed delivery milestones and acceptance criteria to ensure that the software meets all specified requirements before final acceptance. In addition, regular progress reviews and testing phases will allow for adjustments as needed and ensure the product aligns with your business needs and quality standards.

3. Don't fall for cheap upfront fees

Most outsourcing agencies will offer cheap services and continue to add "unexpected fees" down the line when they know you can turn back. To avoid that, it's crucial to outline all potential costs in the initial contract, including those associated with project management, testing, and any post-deployment support. 

Additionally, establishing detailed project scope and clear deliverables helps prevent scope creep, which often leads to additional charges. Regularly revisiting and reassessing project timelines and deliverables can also prevent costly surprises. Lastly, look for a pricing model that aligns with your project's scale and complexity, whether it's fixed-price, time-and-materials, or a hybrid approach.

Outsource Software Development to Deazy 

At Deazy, we are committed to revolutionising digital solutions by providing a unique platform that connects enterprises, agencies, and scale-ups with top-tier software engineers. Our service is designed to efficiently match projects with the necessary development expertise, ensuring quick and effective digital transformations across various industries.

Here is how we help companies globally overcome outsourcing challenges. 

• Security: Our background checks and mandatory information security assessment ensure that our programmers can handle your project in line with ISO27001 standards. 
• Guaranteed delivery: Our in-house project delivery managers help oversee the programmers, from ensuring your feedback is implemented to making sure your project is delivered before the deadline. 
• Choose team members: You can hand-pick and screen each member of your team and ensure everyone is technical and culturally fit to handle your project. 
• Clear cost estimation: We help you plan your project in line with your budget. You know how much you will spend. No hidden fees. 

We pride ourselves on our track record of impactful collaborations, such as with notable clients like RAC and Popeyes UK. These partnerships underline our capability to deliver sophisticated digital products under stringent timelines. 

Aside from that, our flexible service model supports continual tech innovation, helping our clients maintain a competitive edge in the ever-evolving digital landscape.

If you want to outsource software development with less risk, get in touch with our team today. 

Conclusion 

The decision between in-house vs outsourcing software development involves careful consideration of both risks and business strategies. In-house development allows for greater control and direct oversight, while outsourcing can provide flexibility, access to specialised expertise, and potential cost savings. 

Organisations must weigh their options based on their specific needs, capacities, and strategic goals. The focus should always be on aligning these choices with long-term business objectives and the security requirements necessary to support them.

Frequently Asked Questions